PayPal recently announced updates to its user agreement that alters the eligibility conditions of what is covered under its Seller Protection Program. The payments giant has now eliminated protection from “Item Not Received” claims filed by buyers as chargeback claims with their card issuers for card-funded transactions.
This blog examines this update in detail, what it means for merchants, and why they must be more careful when operating their business.
PayPal’s official website highlights that with effect from January 16, 2024:
“We are revising PayPal’s Seller Protection Program to exclude from eligibility Item Not Received claims filed by buyers as chargeback claims with their card issuers for card-funded transactions.”
From January 16, PayPal’s Seller Protection program will still apply when buyers file:
For more insight into PayPal chargebacks vs. disputes on transactions in a PayPal-hosted environment (AKA “PayPal claims”), read this Justt blog post.
PayPal’s Seller Protection covers merchants in the case of certain claims and chargebacks up to and including returning to the merchant the entire purchase amount, depending on the case. While there is no limit on the number of payments eligible for this program, covered claims are determined as per:
As a merchant, you can visit the Transaction Details page anytime for a quick view of transactions that are eligible for protection under this program.
PayPal’s latest move doesn’t make things any easier for merchants in a retail environment characterized by increasing friendly fraud incidents. In essence, PayPal is removing one of the benefits that made using PayPal as a payment method better for merchants than accepting regular credit card transactions using other payment service providers (PSPs). As a result, PayPal merchants must enhance their precautions to substantiate their claims of having delivered goods to cardholders’ issuers.
Moreover, precautions may not always be sufficient. Most issuers are lenient when it comes to accepting their cardholder’s chargebacks claims. People often misuse these rules to make false claims such as the item has arrived damaged, an item not delivered, or worse, that they never made a purchase – also known as “first-party misuse.” A recent study confirms that 42% of individuals aged 26 or younger (Gen Z) have admitted to making fraudulent claims. Worse, they also reported feeling satisfied with it. The same numbers hover around 22% among millennials and 10% among Gen Xers. (Learn more about customer attitude towards chargebacks in 2023 here).
Specifically, there are many well-known PayPal scams, and the PayPal community is replete with stories of merchants being scammed in various ways. Even if we speak in an overall sense, Justt estimates merchants lose an amount close to $125 billion per year to chargebacks. With these facts, the policy update to Seller Protection Program makes merchants’ lives more difficult.
If you’re a merchant, here are some best practices to follow to protect your interests against friendly fraud for PayPal transactions:
PayPal’s policy updates alter what’s covered by the company’s Seller Protection Plan. While merchants have a chance to retain the entire purchase amount with adequate proof and by meeting certain criteria, the inclusions have turned more stringent.
This renders taking precautions, being more proactive with maintaining evidence, and promptly responding in case of disputes.
Alongside these measures, investing in solutions to gather third-party data in addition to transaction information can be helpful in the representment phase of any chargeback claims.. Use these solutions to aid in navigating favorable outcomes in the chargeback process and guard your business’s financial health.
